Why worry about your kids student debt?

[saladcruncher]

I finished uni in 2010, and became eligible to start my repayments from April 2011.

This was under plan 1 - the 'pay via tax method'

Plan 1 has a 25 year write off, so any remaining debt will be forgiven at the start of April 2037.

I'm already 13 years through this and in those 13 years, I've paid off I think up to 90 pounds. And I'm not going to be paying anymore anytime soon.

Basically it looks like I'll reach the write off period and have paid off 0% of my student debt - a free degree in effect.

I took out the full maintenance and tuition fee loans.

My question is, why are some parents trying to pay huge chunks of their childrens tuition fees or living costs in this situation, when the money could be put into a savings account for a house deposit etc in a few years time?

Granted a lot of people won't be earning under the threshold like I unfortunately have been and the write off is later but the principal is the same.

We pay living costs because my sons loan doesn’t cover them. His maintenance loan is about £4.5k and his rent alone in halls is about £8k. 🤷🏻‍♀️

A few reasons I guess.

They don't want debt hanging over them.

They believe it's morally right to repay the debt.

They know they'll come into money later on so aren't too worried about house deposits for their kids later down the line.

And of course, as you say, a lot of graduates will be earning above the threshold quite early on.

FWIW I'm still paying off my student debt as I'm on an earlier plan and it doesn't get written off anytime soon. I haven't overpaid it, but for the majority of my time since graduation I've been earning over the threshold so it's chipping away. It is what it is.

Because plan 1 loans haven't been available for 12 years. Because they anticipate their offspring earning more than you. Because they can afford it.

@AdventuresInDogDayCare

Yeah that's a different situation. You're topping it up. 😊

@titchy

Yeah it's plan 2 loans now. I also anticipated to be earning more than I did! I did a STEM degree at a RG - these things are unpredictable

Because they can afford it is a good reason 🤣

Because how are you going to get a mortgage to use that money as a deposit if you earn under the threshold - which is less than 30k/year.

The cost of a loan will always be more than the return from savings, so it makes no financial sense.

If my kids were spending out all that money (whether from me, or as a loan) and not managing to earn more than 30k/year I'd question why they bothered - better to get into the job market earlier, perhaps with a non-degree-requiring job, and go back as a mature student when they'd really appreciate it if they decide that actually they do want the degree for personal growth.

@RecycleMePlease

I'm assuming the children will be earning over the threshold, but instead of having no student debt at the start of the life race they have a huge house deposit.

So they buy a home soon after graduation and slowly pay their student debt off.

Seems to make more sense to have their own home and student debt, than renting for years with no student debt.

My Son graduated around the same time on the same plan when fees were around £3,000 per year, also has hardly paid off anything after working and paying back for 10 years and interest rate is low. He is now earning more so paying more each month, so I think he will eventually pay it off. I think the current plans with higher interest rates need to be looked at in detail.

Yeah that's a different situation. You're topping it up.

Thats the situation for lots of parents and kids now.

Plan 1 doesn’t exist anymore. My son is on plan 5, his loans won’t be written off for 40 years and he’ll pay as long as he earns more than £25k which is a pretty crap wage to live on. It’s daunting for our kids to start their life at least £40k + in debt and having repayments hanging over them for potentially most of their working life. It’s no surprise that parents want to help if they can even if there may possibly be better ways to help them financially.

So they buy a home soon after graduation and slowly pay their student debt off.

OK, so I kinda did this (but in the old days, when interest rates on student loans were low, as was the loan amount), and when my 27k salary after a few years of working (which was over the repayment threshold at the time) was enough to get a mortgage on a small house. If I'd waited just one more year though, I wouldn't have been able to get a mortgage for the amount my house was now worth.

But that's not the case now is it.

Their loans are going up at 6%, meanwhile this deposit is getting max 5%, and their salary isn't enough to get a mortgage, so they're just watching their money trickle away.

Better plan - no (or low) student debt, and let them live with you a couple of years to save up the deposit, whilst not losing money on the loan interest.

That makes much more sense to me, than weirdly hoping that they can write it off in 25 years having never earned over the threshold..

I paid £4000 last year in student loan and the interest was £4100. I won't ever pay it back, so I will be paying that much every year for 30 yrs. That's 120k. Many people

I don't see much point paying part of it, because I agree the interest rate is so high that the debt sky rockets fairly rapidly, especially as in the early days of your career your unlikely to be paying back the interest. But if I had had the money to pay a significant chunk or all I probably would have done.

A masters degree I would definitely pay and not take out a loan, that adds an extra 5% and the threshold is lower.

I didn't even notice my student loan coming out of my salary for 20 years and now it's paid off. It not like they are taking a huge sum off your earnings every month.

@Gettingbysomehow people like us that went to uni 20 years ago were on completely different terms than new students are now. I didn't miss the money and managed to pay off my student loan by 37. My loan was 6k in total

Most people nowadays will never pay it off and are charged something like 9% on anything over 25k, I wouldn't like to be a student now with 40k of debt

I’ve never had a degree and begrudge paying for anyone else’s
a degree is supposed to be a tool to enhance your career and earning potential use it properly and over your career you recover the cost of it many times over

The plan 1 threshold has been around £17k - £20k over the last 13 years. If you haven't paid anything off your loan in that time then that means you've earned under £20k since then?

Grads in my industry start on around 30k-£35k so they will most certainty be paying off their loan immediately and likely pay more in interest than they took out over the life of their loan. That's why parents will support with tuition fees upfront.

If someone is going to earn under the threshold then is there much point in them going to uni - there should be a greater emphasis on other education options.

Plan 5 now! Loans over 40 years not 25!

Because student loan repayments impact affordability to get a mortgage. When you add those, plus pension contribution (hope you're paying those? As none of us will get a state pension worth a damn by the looks of it), plus childcare costs, this is part of why people in their thirties and forties can't buy a house. A deposit for a house can be as big as you like, but if it doesn't buy the whole house, you need to qualify for a mortgage and the requirements are very strict now and the banks are very risk-averse.

I worry about my children's student debt (both plan 2) but haven't done anything about it yet. Our first priority is definitely to help them get them onto the property ladder.

One is a teacher so is not going to be earning megabucks and I don't know if she will ever pay off the loan. If she is unlikely to pay it off, there is no point in paying some of it off as it won't make any difference to her repayments.

The student fees plus rent was about what their school fees were so I just decided to let them be debt free. Also 4 of the 5 are now lawyers so earn a fair bit so they are in the category where it is better not to have the loans at all. Also I was able to afford to help all 5 children buy a first home (the last 2 qualified as lawyers last month). Lawyer in London on more than £100k who will work for 40 years etc full time are very likely to pay more in the repayments and the 9% of earnings over the threshold of their wages so for parents in my position it can be wise to ensure they take out no loans at all. However plenty of parents take a different view.

In families where women serve men at home, marry, don't work much ,earn pin money etc then it is certainly worth taking the loan as you never pay it back (IF morally people think it is fine tax payers subsidise 3 years of drinking and hanging around having a good time). One chap used his loan to fund his fares to go to fight for ISIS.

@Xenia

You've done great for your kids, well done! And in those circumstances, it'd be financially sensible to pay upfront.

I hope the 'women seve men' thing wasn't a dig at me - I've never had children etc and I studied a numerical degree at UoB - I certainly didn't spend 3 years drinking! Actually I didn't drink at all during most of uni

@Fifthtimelucky

Yeah, this is the sort of middle ground situation I mean. Where parents pay a chunk, then a few years later the interest has rolled it back up again and it was a waste

Similar to pp, we covered the majority of costs for our 2 for their Bachelors. They’re both now in professional jobs, paying high interest rates on the loans they took for their Masters degrees. Our nieces and nephews are also paying loans back. Salaries have risen, but tax thresholds have stalled so they’re paying more tax as well as their high interest student loans. Not great when you’re trying to save for a deposit/get a mortgage.

we're paying for DS1 as there are no student loans available where we are

and having read this thread and realised the magnitude of repaying student loans these days, I am very pleased we can afford to pay for him.

We do get a grant for tuition fees though.

When we started this process it seemed to me that us in the Channel Islands got a bad deal on the student loan front. Now I'm not so sure!

@saladcruncher jakers your salary is low 14 years on.